Supplementary memorandum by the Rt Hon
Caroline Flint MP, Minister for Europe, Foreign and Commonwealth
Office
EUROPEAN SECURITY
STRATEGY
When I gave evidence to Sub-Committee C on 16
October I promised to write to the Committee on our policy towards
the Nabucco pipeline and on trends in Russian domestic consumption
of gas.
NABUCCO PIPELINE
(Q422)
It has long been our view that diversity of
energy mix, as well as a diversity of routes of supply and sources
of supply, is necessary to provide long term energy security for
the UK and EU as a whole. There are differences in approach to
the issue across the EU, but successive European Council conclusions
have noted that the EU needs to agree how to speak with one voice
on external energy policy. The Georgia crisis, and the coincidental
temporary closure of the Baku—Tblisi—Ceyhan oil pipeline
in August 2008, brought the need for European diversification
of source and route of supply sharply into focus. In response,
we have called for support for the development of the Southern
Corridor and in particular the proposed Nabucco gas pipeline.
This pipeline would bring gas from the Caspian region to EU markets
via Turkey and would provide a market balancing mechanism to ensure
that the EU was not dependent on a single supplier, who would
hold a monopoly and be able to set the price. It is our belief
that pipeline projects should be delivered by the market and,
given the price balancing role of this pipeline, which would provide
a new route and gas from new sources in terms of EU supply, we
are fully supportive of it.
A commercial consortium made up of six companies
is already established and is developing this project. We would
expect this consortium to lead the funding of the pipeline. Given
the lack of confidence in both the political stability of the
producing and transit regions and the ability to raise sufficient
funding on the market in the current economic conditions, we are
encouraging the European Commission to step up its political engagement
in the region on this subject. We are also exploring options for
some public involvement through possible support from European
institutions, for example the European Investment Bank, which
already supports large scale infrastructure projects both inside
the EU and beyond.
RUSSIAN GAS
CONSUMPTION (Q426)
Lord Hamilton asked whether the Government thought
that the proportion of Russian gas consumed domestically would
rise. There is a great deal of uncertainty about the development
of the Russian gas market over the coming years. Gazprom's bullish
forecasts regarding long-term increases in overall output and
exports need to be set against widespread scepticism among independent
analysts, some of whom in fact predict a potential "gas supply
crunch" for Russia within the next few years, primarily due
to Gazprom's under-investment in new production projects. Under
this scenario, Russian gas output would fail to keep pace with
the twin requirements of meeting growing domestic demand whilst
simultaneously fulfilling Gazprom's supply obligations to its
external customers in Europe. This would require the Russian authorities
to make tough choices over which markets—domestic or external—to
supply as its first priority. But at present, it remains unclear
whether such a "crunch" will in fact materialise, and,
if so, in what time-frame and on what scale. I attach a background
paper on this issue, which you may find useful. (Not printed here).
30 October 2008
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